EUR/USD moves higher despite ECB plan skepticism

The euro moved solidly higher against the U.S. dollar Monday however,  the single currency remained subdued as traders debate the true effectiveness of the European Central Bank’s plan to control the burgeoning  debt crisis.

EUR/USD bounced from 1.2342, the session low to hit 1.2420 during U.S. afternoon trade, 0.26% lower on the day.

The pair was likely to find support at 1.2248, the low of July 31 and resistance at 1.2442, the session high.

The ECB indicated last week that it may restart its bond buying program, to help lower Spanish and Italian borrowing costs.



However traders remained wary amid concerns over how effective the ECB’s new bond buying program would be, in the light of differences from the bank’s existing scheme.

ECB head Mario Draghi also said any such action was conditional on euro zone governments experiencing difficulty on bond markets applying to the bloc’s bailout funds to purchase government bonds and accepting strict conditions and supervision.

Renewed concerns that Spain may yet request a full-scale sovereign bailout kept the yield on the country’s 10-year bonds hovering close to the critical 7% threshold widely seen as unsustainable if a country is to remain solvent.

Meanwhile, data on Friday showing an unexpected increase in the U.S. unemployment rate last month fuelled expectations for another round of quantitative easing from the Federal Reserve.

The U.S. Department of Labor said the economy added 163,000 jobs in July, the biggest increase since February and outstripping expectations for an increase of 100,000.

However, the U.S. unemployment rate unexpectedly ticked up to 8.3%, from 8.2% in the preceding month, keeping alive speculation over the possibility of further monetary stimulus.

The euro was higher against the pound, with  EUR/GBP up 0.42% to 0.7952, but was weaker against the yen, with  EUR/JPY slipping 0.13% to 97.07.

Earlier Monday, the ECB said that it refrained from buying government bonds through its Securities Markets Program last week.
in Forexpros